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Best Practices of Giant $1B+ Hedge Funds

Best Practices of Large Hedge Funds

Below is a bullet point list of some best practices that I have seen $1B+ hedge funds employing that are more often than not missing within small teams of hedge fund professionals.

Giant well run hedge funds often have:

  1. Better research processes in place and these are constantly being improved in many ways every quarter. They focus on Kazien - constant improvement
  2. Documentation, their compliance processes, operational procedures,compliance checks, internal controls, hiring processes, and risk management techniques are all documented in great detail to help ensure consistent quality and improve what is being carried out
  3. International marketing and sales teams which cover institutional investors and consultants in at least Europe and the United States if not also in Australia, South Africa, South America and Asia
  4. Deep Pedigree, with larger pocketbooks the largest of hedge funds are able to retain the most experienced experts not only as adjunct advisors to the fund but full time employees or consultants which provide daily or weekly insights on upcoming investment opportunities
  5. Human Resources strategies, many small hedge funds do not have any long-term talent development, or  Star Employee hiring practices in place.  Larger hedge funds do and must to keep their organization moving forward and growing over the long-term
  6. Master DDQs, every large hedge fund I know of has a very thorough master due diligence questionnaire that is constantly updated.  The larger the hedge fund the more likely it is that their investors will be asking for a very thorough DDQ during the due diligence phase.
  7. Superior Marketing, larger hedge funds have moved to the top of the learning curve when it comes to figuring out how to raise capital.  They use multi-modality marketing channels and materials and they have relationship development processes and goals in place which match up with the long-term growth growth goals of the fund.  They are also more than willing to invest in the best graphic designers and sales copy writers who can provide another edge over those who skimp on their image and marketing presence. 
  8. More In-House Functions, while large hedge funds still use service providers and rely upon business partners many of them have large enough staffs and unique enough processes that some work such as some investment research, operations, accounting, or marketing may be done in-house instead of being outsourced to service providers such as administrators or third party marketers.
  9. More Verification Points, the largest of hedge funds have been asked 500 times for their holdings, and 3,000 times for their PowerPoint presentation. They have completed hundreds of due diligence processes and are use to working with consultants who need to check every fact, assertion and claim.  They are use to operating within the world of providing evidence for everything said, and because of this may quickly meet the requests of investors who ask for such evidence.
  10. Long-Term Strategies & Goals, most large hedge funds I know of plan for the next 3-5 or 5-7 years strategically in who they hire, market their fund to, and where they open offices.  In contrast most smaller hedge funds are very focused on day-to-day or month-to-month operations and most think in terms of 1-3 year plans.  When investors see the fund planning for, investing in the long haul it shows and that is part of why some larger hedge funds receive more allocations than small ones - they have the infrastructure and mindset more in common with an institutional investor.

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